10 Ways to Buy Smart
Course
Title
. . . and Sell Smarter
Tracy Leenman
Musical Innovations
July 2013
10 Ways to Buy Smart
Does this look all too familiar?
•
Creating a model inventory by department
•
Getting your departments in proportion
•
Setting “open to buy” system
•
Defining your selling “sweet spot”
•
Unloading your “MUTT”s
•
Buying smarter
•
Planning for seasonal selling
•
Merchandising to sell
•
Monitoring the numbers
•
Expanding your “sweet spot”
What’s Wrong Here?
A Hypothetical Example
Sales of Electric Bicycles By GPM
$500-699
18%
Inventory of Electric Bicycles By $$
> $700 2%
> $700 8%
< $300 29%
< $300 37%
$500-699
42%
$300-499
43%
$300-499
21%
Creating a Model Inventory
• Work department by department
 Start with your obviously “overstocked” or slow-moving departments
 The smaller the “department” you study, the more accurate your information will
be and the more inventory control you will have
• Look at a time frame (the larger the better)
 e.g. one full year less Christmas selling season (10 months)
 or one full year less rental season & Christmas (9 months)
 Look at gross sales & average inventory in each department by season
NOTE: Average Inventory = [Inv (Day 1) + Inv (Day 2)] ÷ 2
 Average inventory % of total hypothetically should match % of total sales
 Sales floor space and other expenses hypothetically should be proportional, too.
Creating a Model Inventory
• Divide/count items in one inventory department by price point
 Figure out inventory load (COGS) for each price point
• Divide/count items sold in that department by price point
(for each time frame)
 Figure out GP and GPM for each price point (gross sales – COGS)
• These two %’s should hypothetically match for each department
i.e., Hypothetically, if 37% of the profit you made on electric bicycles
came from bicycles you sold for $300-499, then 37% of your stock
of electric bicycles can be be bicycles
you would sell in that price range.
Creating a Model Inventory
• Figure out what % of your inventory load (money spent on inventory to
sell)
can be devoted to each department,
then to each price point.
• Turn = COGS ÷ Average Inventory, so
If you want a turn of 2,
then Average Inventory should be COGS ÷ 2
If you want a turn of 4,
then Average Inventory should be COGS ÷ 4
REMEMBER: Average Inventory = [Inv (Day 1) + Inv (Day 2)] ÷ 2
More on Model Inventory
• Hypothetical example: If you sold $20,000 (your cost) of electric bicycles last year
(10 months, excluding the Christmas selling season), and you want a turn of 2,
you can stock about $10,000 (your cost) of bicycles during those months
Within that $10,000, they can be divided up in price points by the same %’s
as your GPM’s. Hypothetically:
If 37% of the bicycles you sold went for under $300, then 37% ($10,000 X .37,
or $3,700) can be bicycles you would sell for under $300, at
the GPM you desire in that category.
If 2% of the bicycles you sold went for over $700, then 2% ($10,000 X .02,
or $200) can be bicycles you would sell for over $200, at
the GPM you desire in that category.
EXCEPTION: You can’t buy a bicycle you will sell for over $700 for only $200, but you need at
least one REALLY NICE item to make your store look legit . . .
but you also need to admit you’re just not a high-dollar bike shop!
Setting Your Open to Buy
• What is “Open to Buy?”
 Your “budget” for that department, category or sub-category.
 A way to ensure your inventory is balanced and sellable.
 A way to ensure you have the right stuff at the right time,
so you will be able to serve your customers better.
 The amount of inventory $$ you can have invested in those items.
 If you are over your “Open to Buy,” you don’t buy any more stuff
until you sell enough to free up the $$.
 When you free up the $$, you can buy stuff that will sell more easily,
and you will be more likely to have the stuff your customers want.
 If you are under, and you are “open to buy,” you buy the stuff you need
to maintain appropriate inventory balance.
Finding Your “Sweet Spot”
• Where do you make the most $$? Not gross sales, but GPM and GMROI?
 These are the places that deserve the most inventory load $$.
These are the places that deserve the most inventory load $$.
Do you cater to beginners? Student horns, student guitars, etc.?
Do you lose sales of these to the big box stores and sell more of the next price point up?
Are you a pro or specialty shop?
 These are the customers who should be the target of that %
of your marketing dollars.
 These are the customers who should be the target of your SAF.
Make sure they are comfortable in your store.
Expanding Your “Sweet Spot”
 Can you be all things to all people? YES!
But target each group separately for maximum results.
Professional musicians look for a different SAF than middle school parents.
Flutists look for a different SAF than rock drummers.
 Can you expand/change this? YES!
But considering the cost of getting new customers vs. keeping current ones, it’s
easier said than done!
 Consider the pros and cons of reaching outside “your box”
Plan on the funds necessary to merchandise, staff, advertise
Plan on the time it will take to grow that business
Unloading your MUTT’s
• What do you do with departments/price points with too much stuff?
 No more buying until $$ is left in your Open to Buy – just like living on a budget!
 Do whatever you have to in order to move the excess.
Engaging, rather than alienating, your commissioned sales people
Freeing up cash to buy what you can sell, at a good margin!
 Set a time frame for lowering price, selling at cost+ or even selling below cost
(Do this on a regular basis)
 Offer attractive add-ons or package deals
e.g. free lessons, discount on accessories
 Make “feature” displays (e.g. end caps)
 Garage Sale or Rummage Sale
 Use your website, social media, eBay
Buying Smarter
• Using Alan Friedman’s Rule (if there is room in your Open to Buy!)
 Buy what you can sell before you need to pay for it
 Buy only what you can sell in x-days, where x=360 times %GPM
 M.I. Rule: “One less and you’d lose a sale”
• Don’t be afraid to say “. . . But we can get it for you quickly!”
• Watch for Show Specials (MEA’s, etc.), Special Offers (rebates, etc.)
• Watch for minimum orders, free freight amounts, etc.
• Remember, everything is negotiable! Re-source carefully . . . and often.
• Ask for discounts for larger school bids, exhibits/shows and other events.
• Check every invoice carefully to be sure you get prices promised.
• Take early pay discounts when beneficial.
Keeping Track
• Re-run all your numbers after each “season” ends
 Don’t assume any parameters have stayed the same
 Make changes as needed in OTB
 Look at what worked & what didn’t
 Engage sales people, get their input
(“We never had enough . . .”)
 Look a level “deeper” than before (sub-categories)
• Keep track of aging inventory
• Change/rotate feature displays
• Watch for local and seasonal opportunities that require additional stock
Thank you!
Tracy E. Leenman
Musical Innovations
150-G Tanner Rd. at Butler
Greenville, SC 29607
(864) 286-8742
tracy@musicalinnovations.biz